Are Permanent Injunctions in Patent Cases Back in Style?

by Foley & Lardner LLP

Two recent district court decisions out of the District of Delaware have again placed the spotlight on permanent injunctions in patent cases. Prior to 2006, there was a longstanding general rule that courts would issue permanent injunctions against patent infringement absent exceptional circumstances. That all changed with the Supreme Court’s landmark eBay decision, which overruled that general rule and replaced it with a four-factor test providing for equitable discretion. Since that time, permanent injunctions have somewhat fallen out of view in remedy considerations. For example, a number of courts have denied injunctions even when the plaintiff was a direct competitor of the defendant.[1] The two recent district court decisions are a reminder that courts are willing to award permanent injunctions, especially in circumstances where the plaintiff practices its invention and the defendant is a direct market competitor.

As indicated by the Supreme Court in eBay, permanent injunctions in patent cases are based on a case-by-case assessment of equitable factors. To be awarded a permanent injunction, a plaintiff must demonstrate that (1) it has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction. eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391, 126 S. Ct. 1837 (2006).

In the recent district court case of Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 2014 U.S. Dist. LEXIS 88488 (D. Del. Jun. 30, 2014), Judge Leonard Stark granted a plaintiff’s motion for a permanent injunction. Regarding the first eBay factor, the court reasoned that the plaintiff demonstrated that it had been irreparably harmed by the defendant’s infringement and would continue to be irreparably harmed going forward in the absence of the requested injunction. The court found it significant that the plaintiff practiced the patents-in-suit and that sales of embodiments of the patents constituted the core of its business. The court noted that the plaintiff had been repeatedly praised and recognized as an innovator in its market and that the defendant competed with the plaintiff for design-win contracts that locked in business from third-parties for a period usually lasting years. The court also reasoned that the plaintiff had already lost sales and seen its prices erode, there was a ‘causal nexus’ between the patented features and the demand for the plaintiff’s products, and the fact that other infringers may be in the marketplace did not negate the irreparable harm.

Regarding the second eBay factor, the court found that the plaintiff demonstrated that the harms it would suffer are not reparable by remedies available at law. In particular, the court noted that the damage to plaintiff’s reputation as an innovator, price erosion, and the incumbency effects of defendant defeating plaintiff for design-wins could not be fully compensated by payment of damages. Regarding the third eBay factor, the court found that the plaintiff demonstrated that the harm the defendant would suffer as a result of entry of the injunction did not outweigh the harm that the plaintiff would suffer in the absence of an injunction. The court noted that sales of the defendant’s infringing products accounted for only a fraction of the defendant’s total annual revenue, while the plaintiff’s revenue, on the other hand, was based largely on devices that practiced embodiments of its patents-in-suit. Regarding the fourth eBay factor, the court found that the plaintiff demonstrated that the public interest favors entry of a permanent injunction because the detrimental effect of inhibiting innovation, coupled with the public’s general interest in the judicial protection of property rights in inventive technology, outweighed any interest the public has in purchasing cheaper infringing products.

A similar result was reached in the recent district court case of INVISTA N. Am. S.a.r.l. v. M&G USA Corp., 2014 U.S. Dist. LEXIS 42834 (D. Del. Mar. 31, 2014), where Judge Sue Robinson granted a motion by plaintiffs for a permanent injunction. Regarding the first eBay factor, the court reasoned that the plaintiffs established irreparable harm because the plaintiffs and defendants were direct competitors, and the plaintiffs evidenced a sufficient nexus between the alleged harm and infringement. The court noted the plaintiffs’ concerns that, as direct competitors, the plaintiffs would suffer irreparable injuries including lost sales and market share, the loss of research and development activities, a loss of goodwill in the market, and a forced loss of their patent exclusivity. The court also found it significant that customers could not readily switch to plaintiffs’ products from defendants’ products at a later time, as customers would have to qualify the different materials for their products and purchase additional equipment.

Regarding the second eBay factor, the court found that legal remedies were not adequate compensation due to the irreparable injuries described above. In particular, the court noted that in a head-to-head competition for any market share, plaintiffs were at a disadvantage, and plaintiffs were likely to lose market share that they may not be able to recapture. Regarding the third eBay factor, the court concluded that the balance of hardships favored plaintiffs. Even though the defendants argued that their business would be greatly harmed by an injunction, the court agreed with the plaintiffs that in light of defendants’ infringement and the irreparable harm described above, the balance of hardships weighed in plaintiffs’ favor. Regarding the fourth eBay factor, the court concluded that the factor was neutral because plaintiffs argued that the public interest in upholding plaintiffs’ patent rights is significant and well recognized while defendants argued the public interest would be hurt by the removal of an innovative competitive product.

While permanent injunctions are still very unlikely to be granted for Non-Practicing Entities, the above recent cases demonstrate that courts are willing to award permanent injunctions under circumstances in which the plaintiff practices its invention and is a direct market competitor of the defendant, and where the patented technology is at the core of the business and/or where the market for the patented technology is volatile or still developing.

[1] See, e.g., Advanced Cardiovascular Sys. v. Medtronic Vascular, Inc., 579 F. Supp. 2d 554, 558-62 (D. Del. 2008) (denying injunction even though parties were direct competitors, although there was also evidence of the existence of licensing by the patent holder); IGT v. Bally Gaming Int’l., Inc., 675 F. Supp. 2d 487, 489-93 (D. Del. 2009) (finding that while the parties appeared to be competitors, there was insufficient evidence, including no evidence of specific market percentages and other information, and thus denying injunction); Praxair v. ATMI, 479 F. Supp. 2d 440, 443 (D. Del. 2007) (denying injunction even though parties were direct competitors, although the plaintiff sought an injunction that would have required a mandatory recall of products held by third party customers of the defendant, which is a much broader scope of injunctive relief than typically sought).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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